Since their introduction in 2008, almost 21 million Energy Performance Certificates have been lodged in England and Wales for homes and non-domestic buildings.
An EPC indicates the energy efficiency of a building in terms of likely fuel costs and CO2 emissions. EPCs are significant for owners and managers of commercial rented properties because under the Minimum Energy Efficiency regulations (MEES) an EPC with a minimum rating of E is required each time a new lease is signed. So non-dwellings with an F or G rating (the two lowest) can’t be let to new tenants.
That rule is set to tighten from April 2023 when the requirement for an EPC will extend to existing tenancies too. As the regulation states, from that date: “landlords must not continue to let a sub-standard non-domestic property to existing tenants (even where there has been no tenancy renewal, extension or indeed new tenancy) or to new tenants.”
The new rule applies when a lease expires. For example, if a property let on a 20-year lease obtained an F rated EPC in 2012, and the landlord continues to let the property on 1st April 2023 there is no legal requirement for the landlord to obtain a new EPC since the tenancy is ongoing. But if the lease expires, then an EPC will be needed, even if the property is let to the current tenant.
This does mean that there is not going to be an overnight shift to higher EPC requirements, because not all commercial leases will expire at the same time. However, there are several factors at work that might put some fire even under a commercial landlord with a long-term lease and an expired EPC certificate.
Firstly, that E-rated minimum EPC will no longer be acceptable in a few years. With the net zero emissions goal firmly in its sights, the government is making moves to lift that minimum EPC to a B rating by 2030. What’s more, there is a proposal to lift the minimum requirement to C by 2027 – just to make sure the property sector is on its toes.
Lifting a property from a G to an E might look like child’s play compared to getting that rating up from an E to a C or a B. Let’s also not forget that since the first EPC certificates were issued, ratings have changed to reflect, for example, the UK’s lower carbon electricity grid. So EPC ratings could look
quite different a decade on. So, if you’re sitting on a E-rated building, it seems wise to start upgrading sooner rather than later.
Another issue that should make landlords consider blowing some dust off that old EPC certificate is that the property market is undergoing seismic changes right now. A 20-year lease is becoming less common every month in 2021, as more companies regard flexibility as a must-have in their accommodation planning. Higher turnover of tenants, including the growth of sub-letting, mean that EPCs will see a higher churn rate too.
When the first EPCs were issued in the early stages of the MEES scheme, the figures painted a sorry picture of the energy performance of non-domestic buildings. Of the certificates registered in 2009, 18% were in the F and G categories. And only around 7.5% were A or B rated. In 2021, the picture was very different: Only 2% of buildings fell into the F and G categories. And 16% were A or
B rated. It has taken over a decade, but those lower-performing buildings have almost been eradicated.
Currently, a total of 46% of non-domestic buildings fall into the D and E categories. That means that by 2027, half of our building stock will have to improve pretty significantly - in just over 5 years. The clock is speeding up.
Upgrading a building for better energy efficiency could be viewed as an opportunity. With today’s HVAC technology it’s easy to address more than one issue simultaneously. For example, the addition of more energy efficient ventilation can also provide better indoor air quality. And CO2 monitoring makes occupants more productive and comfortable while also allowing for efficient demand control of air conditioning. But whatever choices are made, it’s important not to leave them too late.